(Reuters) – A major Chinese ship insurer will halt indemnity cover for tankers carrying Iranian oil from July, dealing a blow that narrows the insurance options for Tehran’s main export already constricted by payment barriers caused by Western sanctions.
With Western sanctions on Tehran increasing, sources at the China P&I Club told Reuters on Thursday it did not want to stand alone in the market, especially after insurers in Japan and Europe plan to either limit or ban their own coverage for tankers operating in Iran.
This is the first sign that refiners in China, Iran’s top crude buyer, may struggle to obtain the shipping and insurance to keep importing from the Middle Eastern country. Iran’s other top customers — India, Japan and South Korea — are running into similar problems, raising questions on how Tehran will be able to continue to export the bulk of its oil.
Crude oil prices are up nearly 14 percent since the start of this year on concerns that Iranian supplies may be disrupted due to Western sanctions. Brent crude traded above $123 a barrel on Thursday. <O/R>
The China P&I Club, whose members include major Chinese shipping firms Sinotrans (0368.HK) and COSCO Group COSCO.UL (600428.SS), is the first Chinese maritime insurer to confirm it will halt business with tankers operating in Iran.
“Many ship owners want to join our club and want our club to cover this risk, but considering all these regulations from the United States and the EU, I know the China P&I club will not do that,” said a Hong Kong-based official with the insurer, which provides coverage to more than 1,000 vessels.
“The China P&I club will not take the risk. We have asked our members not to go there, if they go there, they take their own risk,” the official added, who wished not to be named because he was not authorized to speak to the media.
Starting in July, European insurers and reinsurers will be barred from indemnifying ships carrying Iranian crude and oil products anywhere in the world, in line with sanctions on Tehran.
Iran sells most of its 2.2 million barrels per day of oil exports in Asia, where China, India, Japan and South Korea are the four biggest buyers.
Growing pressure by the West has led some Iranian oil buyers to cut imports, but the problem over obtaining maritime insurance could altogether halt shipments to Asian customers. Chinese imports from Iran are already down more than 21 percent in the first two months of 2012 to around 395,000 barrels per day compared to the same period last year.
Along with Russia and the Middle East, China is one of the few remaining alternatives for Asian ship owners to replace European-based coverage. It is not clear if other Chinese ship insurers also planned to follow China P&I Club and cut coverage.
“I really don’t know what will happen,” said a Beijing-based Chinese industry official. “We are talking about $1 billion in coverage (per tanker). No single insurance company can handle that.”
European insurers provide cover for the majority of the world’s oil tanker fleet. Industry officials say ship owners who still legally trade with Iran will be pressed to find sufficient, or comprehensive, alternative insurance.
“Western insurance companies, taking advantage of their market dominance, have been raising insurance costs gradually for ship owners,” said a Chinese shipping executive.
“Now they say they don’t want to provide cover to those disputed regions. China should really make its own comprehensive considerations (on this issue).”
An official with the China P&I club held out hope the European Union would decide on a last-minute easing of the sanctions. European nations are divided over the sanctions, while oil refiners, insurers and tanker owners face lost business opportunities with OPEC’s second-largest producer.
“As far as I’ve seen with these new published sanctions, it seems to us that there might be some room for compromise,” said a Beijing-based club official, who wished not to be named.
China P&I Club is not a member of the Group of International P&I Clubs, an association of customer-owned ship insurers which cover 95 percent of the world’s tankers against pollution and personal injury claims. The Chinese insurer has applied to join the club and could be taking the action on Iranian coverage to ensure it becomes a member, industry sources said.
The Japan P&I club, the only Asian-based member of the Group of International P&I Clubs, said last month it would only be able to provide a fraction of cover for tankers operating in Iran.
“It’s now non-life (insurers) and shippers who can tell us how many cargoes we will be able to ship from Iran,” said a manager from a Japanese firm that buys Iranian crude, adding that importing cargoes without insurance was unthinkable.
(Additional reporting by Aizhu Chen in Beijing, Risa Maeda in Tokyo and Meeyoung Cho in Seoul; Editing by Ed Lane)
- Japan refiners want force majeure to cover Iran oil shipping ban (mb50.wordpress.com)
- India ships will lose insurance due to Iran sanctions, may look to China – Reuters (reuters.com)
- S&P: Tankers Brace For Headwinds From Iran Trade Sanctions (gcaptain.com)
- Iran oil exports fall as sanctions take toll (business.financialpost.com)
By Peter Apps
(Reuters) – The uprisings that swept the Middle East this year have cost the most affected countries more than $55 billion, a new report says, but the resulting high oil prices have strengthened other producing countries.
A statistical analysis of International Monetary Fund (IMF) data by political risk consultancy Geopolicity showed that countries that had seen the bloodiest confrontations — Libya and Syria — were bearing the economic brunt, followed by Egypt, Tunisia, Bahrain and Yemen.
Between them, those states saw $20.6 billion wiped off their gross domestic product and public finances eroded by another $35.3 billion as revenues slumped and costs rose.
But as the major oil producers such as the United Arab Emirates, Saudi Arabia and Kuwait avoided significant unrest — often through increasing handouts as oil prices rose — they saw their GDP grow. Oil prices rocketed from around $90 a barrel of Brent crude at the start of the year to just short of $130 in May before retreating to around $113 now.
“As a result, the overall impact of the ‘Arab Spring’ across the Arab realm has been mixed but positive in aggregate terms,” the report estimated, saying overall the year to September saw some $38.9 billion added to regional productivity.
Libya looks to have been the worst affected, with economic activity across the country — including oil exports — halted at an estimated cost to GDP of $7.7 billion, or more than 28 percent. Total costs to the fiscal balance were estimated at $6.5 billion, roughly 29 percent of gross domestic product.
In Egypt, nine months of turmoil eroded some 4.2 percent of gross domestic product with public expenditure rising to $5.5 billion just as public revenues fell by $75 million.
HANDOUTS NOT REFORM?
In Syria, where protests have continued throughout the year in the face of a bloody crackdown, the impact is hard to model but early indications suggested a total cost to the Syrian economy of some $6 billion or 4.5 percent of GDP.
The report said the number of Yemenis below the poverty line was expected to be pushed above 15 percent as a result of currency falls and protracted unrest. Total cost to the economy was estimated at 6.3 percent of GDP, with the fiscal balance deteriorating by $858 million, 44.9 percent of GDP.
Tunisia, where the protests began in late 2010, lost some $2.0 billion from its GDP, roughly 5.2 percent, with negative impacts across almost all sectors of the economy including tourism, mining, phosphates and fishing. Tunisia’s government increased expenditure by some $746 million, pushing its fiscal balance some $489 million into the red.
Saudi Arabia’s newly instituted handouts and wider public investment program, the report estimated, amounted to some $30 billion — perhaps seen by the kingdom’s rulers as a way of avoiding real reform. But increased oil prices and production helped boost gross domestic product by more than $5 billion and push up public revenues by $60.9 billion.
In Bahrain, oil helped cushion the impact of weeks of protest, with the fall in GDP relatively low at some at 2.77 percent. Public expenditure rose some $2.1 billion, partly because of cash transfers of $2,660 to each family.
None of these steps, the report argued, addressed the underlying causes behind the unrest. A better solution, it said, was much broader international support through the G20 or United Nations aimed at much wider reform.
- Arab Spring upheaval ‘cost $55bn’ (bbc.co.uk)
- Foreign direct investment for Arab region expected to fall; Iraq projected to double (thecurrencynewshound.com)